Lexmark International Inc.; market cap as of 23/04/2016:$2.3bn
Apex Technology Co., Ltd.; market cap as of 18/02/2016: ¥25.20bn ($3.87bn)


On April 19, US printer maker Lexmark agreed to a $3.6bn takeover by a Chinese investment consortium led by ink cartridges manufacturer Apex Technology Co., Ltd. and Asian private equity firm PAG Asia Capital. The deal will be financed through a combination of equity contributions by the consortium members and by debt. Furthermore, Apex hopes to bring its expertise in emerging markets and cost-effective production together with Lexmark’s advanced technologies and solutions. The opportunities in the Asian market may prove significant for Lexmark as the printer industry struggles. Moreover, Chinese computer manufacturer Lenovo’s venture capital arm Legend Capital Management will take part in the consortium, which will bring Lenovo’s experience in closing deals for US tech assets, including getting regulatory approval.

About Lexmark International Inc.

Lexmark is a Kentucky-headquartered printer manufacturer operating in over 170 countries with around $3.5bn in revenues as of the end of 2015. The company operates in two segments: the Imaging Solutions and Services (ISS), which offers laser printers, laser multifunction products, as well as supplies and services covering its printing products and technology solutions; and Perceptive Software, which provides enterprise content management software. Since 2010 Lexmark has been involved in strategic acquisitions in order to consolidate its leadership in enterprise software, such as the acquisition of financial, insurance, and healthcare data services provider Kofax Limited in 2015 in a $1bn deal. This move comes as Lexmark attempts to diversify its operations, given the lower demand for its printing products due to a shift to digital documents.

About the Chinese Consortium

The Chinese consortium involved in the acquisition of Lexmark is led by ink cartridges manufacturer Apex Technology Co., Ltd. and Asian private equity firm PAG Asia Capital, with the participation of Legend Capital Management, the venture capital arm of Chinese computer maker Lenovo. Zhuhai-based Apex was founded in 2004 and has become a leading supplier of aftermarket printer consumables, with branches in the Netherlands, the US, Shanghai, and Taiwan. Hong Kong-based PAG was founded in 2002 and became one of Asia’s largest alternative investment management groups with $15bn capital under management across equity, real estate, and absolute returns. Its private equity business focuses on large-scale buyouts, control deals, and structured minority investments. Lastly, Lenovo’s venture capital arm Legend was founded in 2001 and by 2015 it has invested in over 200 companies. It focuses on early-stage and expansion-stage investments.

Industry overview

The printing industry has been shrinking, as consumers shift from printing photos to being satisfied with just looking at them on digital displays. Therefore, players of this industry such as HP Inc. and Xerox have been experiencing falling printing and hardware division revenues for the last quarters, respectively. Both of these companies engaged in attempts to separate their printing business. Similarly, Lexmark has sought to diversify its operations by conducting strategic acquisitions, even though the expansion has not worked out very well, as the company still heaped losses in four out of its last five quarters.

Moreover, the Lexmark acquisition comes in the context of a Chinese ‘buying spree’, which has seen in the first quarter of 2016 about $92.2bn outbound deals from China, as compared to a total of $106bn in the whole past year. The larger picture of the prolific Chinese deal making is the slowdown of their home economy, which pushes businesses to look abroad for new markets, and acquisition of expertise and established brands. For the first three months of 2016, Chinese buyers represent $101bn, or about 15%, of global deal activity. The Lexmark acquisition is one more entry in the list of these deals, which also includes the acquisition of technology distributor Ingram Micro by Chinese shipping group Tianjin Tianhai for $6bn. It includes some failed deals as well, such as the attempt of acquiring Starwood Hotels & Resorts Worldwide Inc. by the Chinese Anbang Insurance Group Co.

Deal structure

The deal, which will be financed through a combination of equity contributions by the bidding consortium and by debt, will cost $40.50 a share. This price represents a 16.8% premium to the Lexmark’s Tuesday close of $34.66. It also represents a 30% premium to its closing price on Oct. 21, the day before the fact that the company was exploring strategic alternatives became public.

The merger, which is expected to close in the second half of 2016, has been unanimously approved by Lexmark’s board. It remains subject to shareholder and regulatory approval from competition authorities as well as from the Committee on Foreign Investment in the USA. However, the company said it does “not currently anticipate any significant hurdles from regulatory reviews”.

Deal rationale

Lexmark had been looking into strategic alternatives since last October, when it announced it was putting itself up for sale. Like its competitors, Lexmark has been struggling as more firms move to a digital workplace. However, the fall of 2015 brought no players willing to pay an acceptable price, and earlier this year, the company began thinking over whether it should sell its assets separately.

There are two main reasons that make the Chinese consortium an excellent merger counterparty for Lexmark. Firstly, the possibility to exploit growth opportunities in the Asia-Pacific market, where hard copies have yet to be displaced by digital, as is largely the case in the U.S. And secondly, the fact that Apex, one of the Consortium’s leaders, manufactures parts for ink cartridges making it possible to extrapolate synergies.

“With the Consortium’s resources, we will be able to continue to invest in and grow the business to more fully penetrate the Asia Pacific market for hardware, software and managed print services,” Paul Rooke, Lexmark’s chairman and chief executive, said in a news release. While, Jackson Wang, the chairman of Apex, stressed the reasons that moved their decision to bid: “We are excited to work alongside Lexmark as they continue to invest in advanced technologies and solutions to best serve their customers and business partners, while simultaneously pursuing untapped opportunities in emerging markets particularly in Asia for future growth”. Furthermore, he added that Lexmark was a “tremendous cultural fit”.

Lexmark said that it intends to keep its corporate headquarters in Lexington, Ky., and that Mr. Rooke would retain his roles as chairman and chief executive. Moreover, Lexmark’s two business groups, Imaging Solutions and Services and Enterprise Software, are expected to continue unaffected.

Market reaction

In after-hours trading, Lexmark shares were up 11.3 per cent from a closing of $34.66 on Apr. 19 to $38.57.


Goldman, Sachs & Co. is acting as the exclusive financial advisor to Lexmark, and Wachtell, Lipton, Rosen & Katz is acting as the company’s legal counsel.Moelis & Company is acting as financial advisor to the Consortium, along with Skadden, Arps, Slate, Meagher & Flom and King & Wood Mallesons as legal counsel.


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